In December, the U.S. labor force participation rate dropped to 62.4% from 62.5%. This decline is linked to mixed reports in U.S. Nonfarm Payrolls data.

USD/CAD and GBP/USD Movements

The USD/CAD pair rose as the U.S. dollar gained strength from the labor data, while the Canadian dollar faced pressure from oil prices. The USD/JPY approached one-year highs as investors adjusted their expectations regarding short-term rate cuts by the Federal Reserve. The GBP/USD fell below 1.3450, affected by the nonfarm payrolls data, which influenced predictions about a Federal Reserve cut in January. However, the UoM Consumer Sentiment Index in the U.S. increased slightly to 54 in January, surpassing the forecast of 53.5. The EUR/USD experienced more selling pressure, nearing multi-week lows around 1.1620 because of the stronger U.S. dollar. At the same time, the GBP/USD hovered around 1.3380, challenging the 200-day Simple Moving Average amid a strong performance of the U.S. dollar. Gold showed a positive trend on Friday, approaching yearly highs near $4,500 per troy ounce. In the cryptocurrency world, Bitcoin held steady at $90,000 but stayed below the 50-day EMA. Ethereum remained above $3,000 despite ETF outflows, while XRP continued to see lower retail demand.

Market Movements and Investment Strategies

The labor force participation rate’s decline to 62.4% adds complexity, but markets are increasingly betting that the Federal Reserve will postpone rate cuts. This suggests sustained dollar strength, particularly against the Euro and Pound. We recommend buying near-term call options on the U.S. Dollar Index (DXY) as a direct way to take advantage of this shift. As U.S. Treasury yields rise and gold approaches yearly highs near $4,500, we are witnessing classic risk-off signals, which can negatively impact stocks. The current environment is reminiscent of the challenges faced by equities back in 2022 when the Fed raised rates aggressively. It may be wise to position for increased market volatility by buying calls on the VIX index ahead of next week’s inflation data. We expect the EUR/USD to continue its decline towards the 1.1600 target, and the weakness is particularly notable. The British Pound breaking below its 200-day moving average also presents a bearish signal that investors shouldn’t overlook. Selling out-of-the-money call options on both pairs could be an effective strategy to earn premiums while anticipating further declines. The downturn in cryptocurrency, with Bitcoin struggling to maintain $90,000, aligns with a shift away from speculative assets. Reflecting on 2025, we saw how significant institutional investment was, and the current ETF outflows indicate that large players are adopting a defensive stance. Buying puts on major crypto assets could provide a solid hedge against ongoing market fears. Create your live VT Markets account and start trading now.

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